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Tuesday, June 20, 2017

Lock in your mortgage

After almost seven years without an interest rates increase,
it appears as though the Bank of Canada is finally ready to make a move. The Bank
of Canada’s senior deputy governor Carolyn Wilkins has recently given a
“hawkish” speech, where she used stronger than usual language about a future
interest rate rise: “As growth continues … (the Bank’s) governing council will
be assessing whether all the considerable monetary policy stimulus presently in
place is still required.”

But what does that mean for Canadian households which are
basically drowning in debt? Statistics Canada has just reported that the ratio
of household credit market debt to personal disposable income declined from
167.2% in the previous quarter to 166.9% in this quarter. This decline is quite
insignificant and doesn’t alleviate the debt burden situation. The gravity of the debt problem becomes even more vivid if
one considers the fact that 66% of that pile (or about C$1.3 trillion) is
mortgages. After Carolyn Wilkins’ speech, Canadian newspapers were flashing
headlines like “Canadian Mortgage Rates
Could Start Rising 'As Soon As July'” and “Lock in your mortgage if you can’t take the rate-hike heat”. This
might be sound advice at this point in the credit cycle.Ukrainian Credit Union Limited